Serious musings of a Questioning mind: Finance Basics

Thursday, January 24, 2008

Everyone can do with understanding the basics of Finance. Same is applicable for me too! :)

Sr. No.	Term	Meaning
1	Liquidity Ratio	It shows the ability of a firm to pay its short term debts as they mature
2	Current Ratio	Current Assets / Current Liabilities
3	Quick Ratio (Acid-test)	Quick assets / Current Liabilities where, quick assets = current assets - inventory
4	Profitability Ratio	It is used to measure a firm's efficiency & ability to generate profits
5	Gross Profit margin	Gross profit / Sales
6	Net Profit margin	Net Profit (PAT) / Sales
7	Ownership Ratio	This helps to analyze the present and future investments in a firm & to compare the investments with factors such as Debt, Earnings, Dividends & Stock price
8	Return on Equity or Net Worth (RONW)	RONW = Net Profit / Avg. Equity
9	Earnings Per Share (EPS)	EPS = Net profit / No. of shares outstanding
10	Price Earnings Ratio (P/E)	P/E = Market price of shares / EPS
11	Debt Equity Ratio	Total debt / Total Equity
12	Debt Service Coverage Ratio	(PAT + Depreciation + Non cash expenses + interest on loans) / (interest on loans + Repayments)
13	Average Net Funds Employed (ANFE)	ANFE = Average Net Working Capital + Average Net Fixed Assets
14	Return On Capital Employed (ROCE)	ROCE = (PBIT - TAX) / ANFE
15	Economic Value Added (EVA)	EVA = (ROCE - WACC) x ANFE

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